Tracking the next move for investment banks

Published 4:00 am, Sunday, October 5, 2008

Goldman Sachs Group and Morgan Stanley may be delving into retail banking soon, but consumers shouldn't expect marble-columned branches sprouting in their neighborhood.

As the two investment banks left standing through the recent Wall Street turmoil, analysts say they're likely to take different paths toward building their retail sides - but few expect them to move rapidly into consumer banking.

Robert Ellis, senior vice president at research and consulting firm Celent's wealth management practice, said Morgan Stanley has two logical options to build up its capital base, which is the goal in moving into the retail banking sector. It can either buy retail deposits from another institution, or build up deposits through an online product, similar to that offered by ING Group, a financial services company based in the Netherlands that offers high-interest savings accounts online to U.S. customers.

"I actually expect them to look at an acquisition," Ellis said. While buying a national bank with a strong deposit base could boost Morgan Stanley into competition with the big three - Bank of America, Citigroup and JPMorgan Chase - Ellis said he thinks the remaining buyout targets are too expensive. "I expect them to focus on picking up a few key regional franchises that have strong deposit bases," he said, suggesting Comerica Inc. of Dallas as one possible target.

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John McCune, director of banking research for SNL Financial, said even a move like that would take a fair amount of time, but early on he expects both Morgan Stanley and Goldman to move slowly into retail.

Ellis suggested Goldman is more likely to handle brokered deposits, or to offer online banking, than to move into neighborhood branches. "I would expect something along the line of ING's orange ball with Goldman's name attached to it would be an attractive offering," he said. "It's just that strong a brand."